Sientra Inc (SIEN) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Sientra Fourth Quarter and Full Year 2014 Earnings Conference Call.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

As a reminder this conference is being recorded. I would now like to introduce your host for today's conference, Nick Laudico, from The Ruth Group. Sir, you may begin.

Thank you, operator. In our remarks today, we will include statements that are considered forward looking statements within the meaning of United States' securities laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the Company's business, strategy and operations or financial performance.

A detailed discussion of the risks and uncertainties that the Company faces is contained in its quarterly report on from 10Q. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The Company undertakes no obligation to update or review any estimate, projection, or forward-looking statement.

With that said, I will hand the call over to Hani Zeini, Founder, President and CEO of Sientra.

Thanks, Nick, and good afternoon, everyone. Thank you for participating in today's call. Joining me today on the call is our Chief Financial Officer and Treasurer, Matt Pigeon.

I will provide a general business update, and then turn the call over to Matt who will provide specific details on our financial performance for the fourth quarter and full year 2014, as well as provide 2015 guidance.

Our call today will include the full year of 2014, I will be remiss not to speak about the entire year and not just the fourth quarter highlights.

2014 was a pivotal year for our company on many fronts. We solidified our position as an innovative aesthetics company, driven by evidence-based, technology-centric, clinically-oriented products that provide choice for our customers and their patients.

This is evidenced in the broad range of clinical and technical publications on our technologies by luminaries in plastic surgery and prestigious peer-reviewed journals and through numerous lectures from the podium at scientific meetings as well as industry and trade education conferences.

We were successful in delivering the message about our technology differentiation and actively moved the debate in the United States to an equal footing with international markets in regards to the utility and benefits of textured implants. We effectively engaged plastic surgeons and patients in a conversation on our texturing technology, its value proposition, and proven benefits.

The conversation in the clinical community about the benefits of our TRUE Texture breast implants as well as textured breast implants in general, continues to proliferate and has become a nearly ubiquitous topic at the medical aesthetics meeting.

A growing body of surgeons recognize the superior benefits of these textured implants and specifically Sientra's leadership and innovation of texture technology, backed by proven clinical evidence showing the reduction of capsular contracture complication. This is something that we at Sientra are very proud of leading and pioneering. Our marketshare growth and performance in 2014 reflect our concerted efforts to highlight our differentiated message and the continued adoption of our products by board-certified plastic surgeons.

In the fourth quarter, we achieved 31% year-over-year net sales growth and 27% growth for the full year 2014. Our quarterly performance benefited from pent-up demand by our surgeons who were awaiting our newly introduced higher filled Smooth Round implant product line extension. It also benefited from easier comps for the second half of the year.

Nevertheless, even accounting for those factors, we are incredibly proud of our sales growth and marketshare gains we made in 2014. In regards to our sales organization, the completion of our successful IPO this past November provided us with the capital to accelerate the growth of our commercial footprint. As such, we initiated the hiring of additional sales representatives in the fourth quarter of 2014 and we are continuing this expansion in 2015. As we build up our sales coverage, we have also taken the opportunity to optimize our current sales organization by addressing coverage and underperformance in certain territories. Our near term focus in this process is on training the new reps, deploying them into their territories and guiding them through their ramps to productivity over the next nine to 12 months.

Many of our reps are still new to the company, and we therefore expect to benefit from their contributions as they approach productivity in the second half of 2015 and into 2016.

We are excited about the long-term benefits that this strengthened sales force will deliver. As mentioned earlier, in October, we introduced a new line extension to our portfolio of Smooth Round breast implants available in two new projections and 30 new volumes. This line extension provides plastic surgeons and their patients with higher fill and projection options in addition to greater upper pole fullness.

In summary, we are pleased with our performance in the fourth quarter and full year 2014 as we continued our steady marketshare gains. Looking forward, our team is continuing to work towards building a more comprehensive product portfolio and to that end, we expect to announce additional enhancements to our portfolio late in 2015. We believe that the cadence of training and education initiatives we have in place along with our sale force expansion and marketing programs will allow us to build on the progress we made in 2014.

Now, I would like to turn the call over to Matt, who will discuss our financial results in greater detail and outline our 2015 financial guidance.

Matt?

Thanks, Hani. I will now discuss our fourth quarter and full year 2014 results. Our fourth quarter and full year 2014 financials are available in greater detail in our earnings press release issued earlier this afternoon.

Additional details will be available in our upcoming filing of our 10k next week. Total net sales for the fourth quarter of 2014 were $12.1 million, representing growth of 31% compared to total net sales of $9.3 million in the fourth quarter of 2013. As mentioned by Hani, sales in the fourth quarter benefitted from the launch of our new line extension.

Total net sales in the full year ended December 31, 2014 were $44.7 million, representing growth of 27.2% compared to $35.2 million in the full year 2013.

Gross profit was $8.9 million or 73.5% of net sales for the fourth quarter 2014 compared to gross profit of $7 million or 75.8% of net sales for the same period in 2013. Gross profit for the full year ended December 31, 2014 was $33.2 million or 74.3% of net sales compared to gross profit of $26.6 million or 75.6% of net sales for the full year of 2013. The decrease in gross margin for the fourth quarter and full year 2014 was primarily due to a manufacturing price increase and a cost associated with our October launch of our new Smooth Round product line extension, offset by holding fixed overhead relatively constant for the period.

Operating expenses increased $1.5 million or 15.7% to $11.4 million in the fourth quarter of 2014 compared to $9.8 million in the fourth quarter of 2013. This increase was primarily due to the sales force expansion and costs associated with being a public company.

For the full year ended December 31, 2014, operating expenses decreased by $5.8 million or 12.9% to $39 million compared to $44.8 million in the full year of 2013. The full year decrease was primarily due to a decrease in expenses related to the Mentor litigation in which Sientra prevailed on all claims, and the Grader Street arbitration, partially offset by an increase in employee-related expenses for the sales organization, accounting related costs and federal excise tax.

With respect to our sales organization, we expanded the 39 sales reps and 7 managers for a total of 46 individuals as of December 31, 2014. This represents a net addition of 6 sales reps during the year. To simplify our reporting on a going-forward basis, we will only report the number of sales representatives or as we call them, plastic surgeon consultants or PSCs for short.

Net loss for the fourth quarter of 2014 was $3.2 million, compared to a net loss of $3.1 million in the prior year for the full year 2014 net loss was $5.8 million compared to $19.1 million for the full year of 2013. As of December 31, 2014, we had $96.7 million in net cash and cash equivalents and as discussed previously, we completed our initial public offering in November receiving aggregate net proceeds of approximately $77 million after expenses related to the IPO.

Having discussed our 2014 financial results, I will now turn to our 2015 guidance and outlook, and as Hani mentioned earlier in his remarks, we experienced solid growth in 2014 and our focus in 2015 will continue to be on gaining marketshare while we build out our commercial operations.

As such, we estimate total net sales for 2015 in the range of $52.5 million to $54 million with a gross margin of approximately 73%. In addition, through the expansion of our sales organization, we anticipate adding another 8 sales representatives during 2015 for a total of 47 sales reps with most of these hires coming in the first half of the year.

With that, I will now turn the call back over to Hani for final closing remarks.

Thanks, Matt.

I would like to summarize and close by reiterating that we are extremely proud of our 2014 accomplishments and believe that our initiatives in 2015 will position Sientra for continued marketshare gains over the next several years. The sales organization is energized, expanding, and deepening the relationships with board-certified plastic surgeons, a clinical community that continues to recognize the importance of our TRUE Texture technology, and Sientra is the innovation leader.

We will also benefit from our differentiated silicon gel technology and by continuing our work to further broaden the choice our product portfolio offers plastic surgeons and their patients.

Given all of this, we are confident in our full year 2015 guidance. We believe Sientra is well-positioned to execute on our stated strategy and capitalize on what we see as the large market opportunity that has been in need of further innovation. We remain committed to delivering value-creating innovative solutions to the market as we aspire to become a global medical aesthetics company.

With that, I will now the call back over to Stan to begin the Q&A portion of this call.

Thank you, sir.

(Operator Instructions).

Our first question comes from Tom Gunderson of Piper Jaffray. Your line is now open.

Hi, good afternoon, guys.

Good afternoon, Tom.

So, Hani, talk a little bit. You said in the script that you know, Q4's performance was somewhat helped by a number of things, including the launch of your new Smooth Round. Can you give us a little color around that particular product and then also comment on where you think you are in the sort of product portfolio for augmentation implants, you know, what other wide spaces are there that we might see in 2015 that get filled?

Great. Thanks for the questions, Tom.

In terms of the launch of our product in Q4 for the line extension, our Smooth Round implants that we have launched with, we have heard numerously from our surgeons that they would desire for the Smooth Round implants to have more projections and a higher fill, in order to be consistent with our textured round portfolio.

And so we worked on that during 2014. In the summer -- late summer, early fall, when we went to the conferences and we would ask about that, we indicated to them that this is around the corner for us and what we estimate is many of them have held back from actually moving forward of ordering the Smooth Round devices that we have available at this time until we have launched our higher projecting, higher fill ratio.

And so that bolus order that came in as you introduce new products, yielded a benefit for us in the fourth quarter of 2014.

In terms of the wide space, we have been very transparent and clear about that we have in our round implants, we need to get in certain SKUs of products a little bit more consistency in what we name as gap fillers between different sizes as well as expand in certain lines a little bit larger sizes.

In our section shaped devices, we also have the view that we need a little bit broader footprint and more projection and higher volume that we are working on. So those are the two areas that we are focused on for 2105 and that is what we think that was an enhancement of the portfolio late in 2015 will position us very well to continue to compete and gain marketshare.

Got it. Thanks. That was helpful.

On the -- you know, there is a lot of good things, obviously, that come from going public and going through the IPO process and the attention of the media, your doctors, getting a little bit more information. And also, it also kind of raises a flag to your competition. Was there any change in competition competitive efforts, anything they were doing pro or con since the whole process started last fall?

Tom, I can honestly indicate to you that they have been consistent in their valiant efforts to compete aggressively with us and that hasn't let up on increased in any shape or form from what they have been doing. They have been consistent in being a worthy competitor and coming at us as hard as they can for the obvious reasons because when we have more innovative product technology better portfolio and clinical profile, it is threatening to them and we expect them not to react. And so they have been consistent with that and they have been getting more information through the public process but I don't think that has deterred them one way or another.

And then one quick question for Matt and I will get back in queue. Any change in overall pricing, ASPs, you know, there is a mix out there but I'm just curious in Q4, was it up down or pretty much stable?

Yes, our average selling price is over the year and over the quarter, had remained relatively stable, Tom.

Got it. Thanks, guys.

Thank you. Our next question comes from Jon Block of Stifel. Your line is now open.

Great, thanks, and good afternoon. Matt, maybe I will start with you, just obviously you gave us some revenue projections for 2015, is there anything that you discuss just regarding the cadence throughout the year and I guess I'm going there because you mentioned the new sales force coming on, most being hired in [one age] but they need some time to be trained but yet, so that would imply a back-end weighted number but the comps get a little bit more difficult in the back of the year. So anything that you can talk about directionally for the growth throughout 2015?

Yes, Jon, let me give you the thought behind the guidance and then I will turn it over to Matt.

When we look at our business, we have always been disciplined and conservative in the way we run our business and how we view it. And we have accounted for the factors that you just outlined in terms of new representative additions and -- you know, and in general, we will have a large number of our representatives that will be less than nine months and in certain cases, less than six months, and we have looked at the strong 2014 performance and the comps.

But also, what we have said during the IPO process and since the IPO process, that we believe we can organically and consistently grow our topline in the 20% range, so when we look at our guidance now and we are giving guidance upward of 21% on the high end, it is consistent with what we have said and we are comfortable with that.

The only thing I would add is that remember there is also seasonality in our business with the second quarter and fourth quarter being our strongest quarters, and first quarter and third quarter, we usually see a decline.

Okay, sure. And I'm sorry, I was asking more about the year-over-year growth rates but I could follow up with you offline there. Just, Hani, the second question, you mentioned in the clinical arena, the momentum that you are seeing with Textured and what that does to the [CATCON] and sort of the acceptance that is out there. What is that doing to the shift?

I mean, you know, from Round Smooth to Round Textured and Anatomical, are you seeing that converting to volumes and is there a way to estimate maybe where the market is between those three segments today? Thank you.

Thanks, Jon. Great question. We only have, obviously a view of our business and our business mix. We continue to drive the acceptance and that has gone through not only just the publication and the clinical data but hands-on experience by clinician and surgeons. And the key element and the key factor here is not to mix two things in terms of general market. The reality is that not all textured implants and textured technologies are the same.

So a key messaging for us with our surgeon and the market in general is that just because Sientra TRUE Texture technology is producing these results -- positive results -- that should not be a broad stroke that all textured are going to deliver that.

So what we are seeing is we are seeing a continuation of a strong mix in our business of textured devices, utility versus smooth round, and as we continue to grow and broaden, we expect that to continue.

Okay, great. Thank you, guys.

Thanks, Jon.

Thanks.

Thank you. (Operator Instructions).

Our next question comes from Richard Newitter of Leerink. Your line is now open.

Hi, thank you for taking the questions.

Hi, Richard.

Hani, I think in your script, you mentioned some initial or some additional new product initiatives and in the press release, it also said that you continue to be open to -- I think, an organic kind of -- or potential acquisitions. Can you talk a little bit about what you might have in store for 2015? What areas -- I know an earlier question was asked about where the white spaces were on augmentation. I was just wondering is there anything outside of augmentation that we should b expecting?

Yes, a two part answer, Rich. On one end is the one that we have been comfortable in disclosing, and talking about is the enhancement and the expansion within our current product portfolio on the breast implants and expanders.

And we are going to continue to enhance that because also it gives us the ability to go after the reconstruction market and which we view as a growth opportunity for Sientra. And currently, we are underrepresented there and we are underrepresented because we don't have the full slate of products that is needed in reconstruction, we have many of the products but not all of them and as you all know, it is a little bit different process than the augmentation and we are looking to put ourselves in a favorable position later this year to start building the competitive advantage that we can exploit in that marketplace.

So we see the product enhancement to the portfolio and the larger sizes and the gap fillers as we call them and so on, helping us extend the process that we have in the augmentation market but also start eating away at the reconstructive market.

In terms of additional or other business opportunity, what I can say to you, the second part of the answer, I can say to you that we have been very clear during the IPO process that our interest is to build up into an aesthetics company and at this stage, Rich, for competitive reasons, I'm not going to go into details of which vertical within aesthetics or which product potential or which areas that we are pursuing or are interested in pursuing so we will just leave it at our aspirations of becoming a larger aesthetic company than we are today.

Okay, that is helpful. And is it fair to assume that your guidance contemplates some of these newer product initiatives or should we think of it, you know, the guidance is based on the business as it stands today and you know, any new product launches that materialize should represent either upside or not specifically contemplated in your range?

Yes, I think I would like Matt to answer that question.

Yes, sure. And good question. The guidance that we have given is -- does not contemplate any upside from any of these items that Hani has spoken about and it is really just organic growth with our current product line.

Very helpful and maybe if I could just ask one more -- it's kind of a mix, product mix question, it is -- and correct me if I am wrong here but it sounds like you had a little bit more of -- than average kind of pickup from your Round Smooth portfolio due to some of the new offerings you have there in the fourth quarter.

And that is maybe where a little bit more of the growth came from in the fourth quarter and if that is true, I mean, should we think of the growth moving back more towards kind of the textured and shaped in 2015 as being the primary kind of faster growing portions of your portfolio through the year with Round Smooth maybe being more you know, relatively slower growing to those other two categories or is it going to be equally split between the three or can you talk to that mix between your products? Where the growth is coming from.

Sure. The first part of your assumption is correct in the sense that when we had the introduction and the bolus effect of these additional orders that we received in Q4, that that had for the quarter, had impacted the -- what we look at in terms of mix textured versus smooth. But overall for the entire year, our percentage of product mix being textured versus smooth was higher for the textured than it was in 2013. As we move into 2015, that percentage will change based on when do we get these additional sizes and additional gap fillers and so on, will determine whether our ability to use those into the certain markets whether it be augmentation or reconstruction, that will affect what that mix is.

Notwithstanding that, we expect that we will continue to have a balanced mix in our product from the past years and that balance is more on the textured than it is on the smooth.

Got it. And just one last follow up there, Hani. If Round Smooth kind of was the outperformer so to speak in the fourth quarter, I was under the impression Round Smooth carried a slightly lower selling price than your textured and shaped implants, yet you said that ASP actually remained constant so there is not mix shift due to the increase of the lower priced Round Smooth.

Can you describe why that was the case, did your overall Round Smooth portfolio get better priced this quarter?

Yes. There -- when we talk about our average selling price for the year and it being consistent with 2013 which by the way was identical to 2012, it is obvious that we are not competing on price and so what ends up happening in any given time period and quarter, even though you might have a lower price Smooth Round in comparison to a textured round or a shape, but if the mix on the other side that we sold -- if we sold more shapes than round textures, that carries a high premium and so on a dollar basis, it normalizes. But we did get the benefit in Q4 of our smooth round launch.

Great, okay. Thanks for the questions and congrats on the quarter.

Thank you so much, Richard.

Thank you, and our next question comes from Margaret Kaczor of William Blair. Your line is now open.

Good afternoon.

Good afternoon, Margaret.

A few ones from me. I know all of us have been needling you to try to figure out exactly how much of the Smooth Round contributed to the quarter, can you guys give any kind of estimate, was it $1 million or $2 million as a contributor and will that be repeated as we go into Q1, Q2 and Q3 in the next year?

Thanks, Margaret for that question and I expect nothing less from you and your colleagues and I appreciate the needling but we are going to stay consistent with our past practices of not breaking out granular detail for competitive reason whether it be on the specificity of a product mix or this versus that and so we are just going to stay consistent with what we already disclosed.

Okay, but will that benefit continue into the first half of the year in terms of those bolus sales or have those kind of been made and they are done?

The way that this has worked for us is there was a desire coming into the fourth quarter as you well know, as Matt indicated, that Q2 and Q4 are usually the higher seasonality than Q3 and Q1 for us at least, and what happened is that as doctors were entering into that season and their desire to use our product that we had this pent up demand and bolus orders have come in, we expect on a going forward basis that our business will continue to be steady state and no gyrations, ups and down.

Okay, and then just to follow up on the new products that you guys have talked about, I mean just based on the assumption that you may start to fill in some gaps, have higher fill, higher projection, and clearly, you guys are maybe looking to expand into that reconstruction market. How do you expect that opportunity to develop? Can it be significant in 2015 and kind of how should we think about that over the next two years?

Thanks, Margaret, a couple of things is that I just want to be emphatic in terms of not that we may or may not, we will compete in the reconstruction business. But we are not going to be effectively competing there until we get the slate of products that makes the offering complete and comprehensive in that area. Our expectations is that we should be able to get to that product position late in 2015. And during the -- that time as we are getting to that product, we will have to develop a broader strategy, a national strategy in terms of how do we go after as you all know, the reimbursement market for the reconstruction.

And so we today think that the majority of the benefit -- if not all the benefit is going to come in in 2016.

Okay. And then in terms of the sales reps, you guys have said you would end the year maybe around 47, have you already started hiring in this current quarter, and then as a follow up, is there something that could cause you to accelerate those sales rep to be maybe some Allergan reps are leaving because of Actavis transition or maybe you guys do start adding reps on the GPO side.

Thank you. The answer to part one of the questions is yes. We are continuing to hire as we started in the fourth quarter, we continue to hire this -- at the beginning of this year and thru this quarter. And in terms of the competitive reps, we really have approached this market in a way that we looked at our business based on demand creation, based on value selling and based on the topography and geography are where we need to be because part of this expansion is not just adding number of reps to increase the geography of coverage but also the depth of penetration within accounts, and within the geography that we are already calling on.

And we have had many examples of what adjustments we have made in the second half of the year that has been paying off dividends. So our approach is that we look at that and based on our hiring practices on that and we look at any and every qualified candidate that can fit into the Sientra culture and the Sientra performance metrics.

In terms of potential for acceleration, we are constantly and always monitoring the circumstances and the environmental condition that we compete in in the marketplace and if those change in a way that there are tailwinds that we can take advantage of, then we are prepared and not try to move forward and accelerate the hiring of sales reps and if the reconstruction opportunity also presents itself in a different manner than we have anticipated then we will also put investment behind that as well.

Okay, great. And then just one last one, anything new in terms of your move into new markets outside the US, be it Canada or otherwise? Thank you.

Thanks, Margaret. At this time, we are not going to disclose anything beyond what we have already disclosed.

Thank you.

Thank you. And at this time, I'm not showing any further questions. I would like to turn the call back to management for any closing comments.

Thank you very much, again, I appreciate your participation on the call. We are excited about the prospect of 2015 and as always, Matt and I are available if there is a need for further questions and with that, my gratitude for your participation today and wish you the best of luck.

Thank you so much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.